Commerce Accountancy

Accounting Principles and Practice

1,227 Questions

Accounting principles and practice questions cover core concepts like assets, depreciation, financial statements, and ledger adjustments. These topics are essential for commerce students preparing for academic and competitive exams. Regular practice ensures a strong grasp of standard accounting standards and business operations.

Asset depreciationFinancial statement adjustmentsAccounting standardsSingle entry systemCapital expenditure

Accounting Principles and Practice Questions

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

In periods of inflation, accounting depreciation is ______________ relative to replacement cost and real economic income is ______________.

  1. overstated, overstated

  2. overstated, understated

  3. understated, overstated

  4. understated, understated
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

During inflation, historical cost depreciation is understated relative to the current replacement cost of assets. Consequently, because expenses are understated, the reported real economic income is overstated.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

On the basis of financial analysis, earning capacity of the enterprise cannot be assessed or computed.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

False. On the basis of financial analysis, earning capacity of the enterprise can be assessed or computed. Financial analysis means analysing the financial statements of the firm to make financial decisions. It helps in assessing the earning capacity, present position, past performance, managerial efficiency and helps in inter-firm comparison. 

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Long-term and short-term solvency of the enterprise can be assessed on the basis of ___________ statement analysis.

  1. cash flow

  2. income

  3. financial

  4. all of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Financial statement analysis involves evaluating the balance sheet, income statement, and cash flow statement to assess the long-term and short-term solvency and profitability of an enterprise.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Capital Budgeting Decisions are __________.

  1. Reversible

  2. Irreversible

  3. Unimportant

  4. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Capital budgeting decisions involve huge funds and are long term decisions. As they involve huge costs one wrong decision would have a big effect on the business. Hence, capital budgeting decisions are irreversible as its difficult to take back the decision. 

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Real rate of return is equal to__________.

  1. Nominal Rate x Inflation Rate
  2. Nominal Rate $\div$ Inflation Rate

  3. Nominal Rate - Inflation Rate

  4. Nominal Rate + Inflation Rate
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The real rate of return formula is the sum of one plus the nominal rate divided by the sum of one plus the inflation rate which then is subtracted by one. The formula for the real rate of return can be used to determine the effective return on an investment after adjusting for inflation.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Select the correct statement.

  1. General reserve is created out of divisible profits

  2. General reserve is used for some specified purposes

  3. Revenue reserve include capital reverse also

  4. All the three
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

General reserve is created out of divisible profits. This is the only true statement. General reserve is created to meet any future uncertainties, they are basically the retained earnings of the company.  

Multiple choice historical tools and life of people in britain life in britain in the twentieth century history

What do you mean by Disposable wealth?

  1. money that is spent on non-essential items.

  2. money that is spent on essential items.

  3. money that is spent on defence items.

  4. money that is spent on daily items.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
  • Disposable wealth means money that is spend on non-essential items.
  • People in Britain had a lot more disposable wealth, they spent it on consumer goods and holidays, as well as on buying houses and cars.
Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

On dissolution, all assets are transferred to realization account at ________.

  1. Book value

  2. Market value

  3. Cost or market value, whatever is less

  4. Replacement value
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

All assets are transferred at book value because the main purpose to open realization account is to ascertain the profit or loss due to realization of assets and liabilities. If assets are not recorded at book value actual profit or loss can not be ascertained

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

Which of these is not a method of accounting treatment of premium on joint life policy?

  1. Treatment as an expense.

  2. Treatments as an asset.

  3. Deferred revenue expense.

  4. None of these.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all partners. The amount of policy is payable by the insurance company either on the death or maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy.

There are two method of accounting treatment of joint life policy:
1. Treatment as an expense - When premium is treated as an expense then it is closed every year by transferring to profit and loss account.
2. Treatment as an asset - In this case insurance premium paid is first debited to life policy and credited to bank account. At the end of the year the amount in excess of surrender value is treated as a loss and is transferred to profit and loss account.
Premium paid on joint life policy cannot be treated as deferred revenue expense.

Multiple choice commercial studies budgeting meaning, comparison, types, utility and limitations of budgets public finance, budget and fiscal policy public expenditure and public revenue

In capital budgeting, a negative net present value results in _______________.

  1. Zero economic value added

  2. Percent economic value added

  3. Negative economic value added

  4. Positive economic value added
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Economic value added is the incremental difference in the rate of return over a company's cost of capital. In essence, it is the value generated from funds invested in a business. If the economic value added measurement turns out to be negative, this means that management is destroying the value of the funds invested in a business

Multiple choice elements of accounts accounting in business journal - book of original entry purchases and sales book meaning and importance of journal

Stock-in-trade also includes _____________.

  1. goods in the process of production for sale

  2. items held as fixed assets

  3. items consumed for daily use

  4. depreciation on fixed assets
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Stock-in-trade doesn't include all of a firm's assets when used in the business "

"Stock-in-trade refers to any merchandise or equipment kept on hand and used in carrying on a business. It includes the collection of goods, inventories and merchandise, maintained by a business entity for the purpose of using them for processing, making salable goods or for selling to the customers with an intention to make profit from such deals."

Multiple choice elements of accounts accounting in business journal - book of original entry purchases and sales book meaning and importance of journal

XYZ company purchase an asset that turns out to be defective and was required to be sold as a worn out item. The entry will be made in _______________.

  1. Worn out journal

  2. Cash journal

  3. General journal

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Since the transaction involves the disposal of a defective asset, it is a non-routine transaction that does not fit into specialized journals like cash or sales journals, thus it is recorded in the general journal.

Multiple choice book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

The recording of wages earned but not yet paid is an example of an adjustment that _____________.

  1. apportions revenues between two or more periods

  2. recordings an accrued expense

  3. recordings an unrecorded revenue

  4. None of the above.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Recording wages earned but not yet paid is an accrual adjustment, specifically recognizing an expense that has been incurred but not yet recorded in the accounts.

Multiple choice book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

Income received in advance will be shown as ________.

  1. Current asset

  2. Current liabilities

  3. Fixed asset

  4. Fixed liabilities
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Sometimes, a certain income is received but the whole amount of it does not belong to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance or an Unearned Income. Income received in advance is adjusted by recording the following entry:

Concerned Income A/c Dr.
        To Income Received in Advance A/c 
The effect of this entry will be that the balance in he income account will be equal to the amount of income earned for the current accounting period, and the new account of income received in advance will be shown as a liability in the balance sheet.